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4/19/08

Remember this from April 2nd? That was when Otto told y'all about the looming Codelco subcontractors strike, and from then to now the sleeping bears couldn't understand why spot wouldn't move down. It's finally occurred to people that this is a news story.... after the fact. Here's Bloomie:

"......April 19 (Bloomberg) -- Chile's state-owned Codelco, the world's largest copper producer, stopped production at a third mine, El Teniente, as contract workers struck a fourth day over wages and benefits.

Codelco told its El Teniente mine workers to stay home after protests by workers employed by outside contractors led to arrests last night, said a spokesman for Santiago-based Codelco. He said the company's Andina and Salvador mines remain shut. The stoppage at state-owned..................."

".......SANTIAGO, April 19 (Reuters) - A strike by Chilean mining subcontractors in its fourth day and denting output will keep state-run copper powerhouse Codelco's Andina and Salvador divisions closed through the weekend, the firm said on Saturday.

Codelco, the world's largest copper producer, said its Teniente division had resumed normal operations after a brief slowdown on Saturday due to........"

And there's a bunch of others on offer. Beats me why you need that thousand dollar Stratfor subscription when the real juice comes for free here (and two weeks before anyone else).

This may cause a short-term spike to over $4 for spot Cu when LME opens on Monday.....it may not. My gameplan of Cu basically channelling between $3.50 and $4 hasn't changed, though.

4/18/08

Hallo to you one and to you all, and the most cordial of welcomes to another edition of da quizzz.

This time round we're going to move away from the multiple guess format and try you on summink difrunt like. We're also ringing the changes and moving off economics & finance & stuff, at least this once. This time it's a history quiz (of sorts).

For sure the style and the substance is different this time, but the prizes are as scrumptious as ever. And this week's top prize is right up there battling with the best, cos it's a free guided tour of a Russian gold miner in Venezuela!! Yeah dude...you get a full guided snoop around the back of beyond, watch people drilling exciting holes and then drink vodkas through their noses as the sun goes down.

So buckle you shoelaces, tie your snaps and snap on a tie..here we go with the ten (YES TEN!) questions. Luck be a lady, tonight.......

So, this time you have to work a bit harder. Instead of just writing a), b), c) or d) you're going to have to write a few words and numbers.........what a cheek, eh? Just stop complaining, jot 'em down and send 'em to otto.rock1 (AT) gmail (DOT) com. Answers, as always. come up on Wednesday. So until then,

It started last week, when some landowners near the city of Buenos Aires burned their cropped fields at the same time, and caused a blanket of smoke to waft through the capital city. Everyone thought it was a one-off, but instead of just doing a 'gone with the wind', a combo of the wind dropping and what it looking suspiciously like a successful revenge tactic by the agro boys has covered Buenos Aires in thick, dark smoke. Ironically, it has also affected large swathes of Uruguay, the country accused of polluting Argentina with its new paper mill close to the border between the two countries. Here are some photos taken today (courstesy DyN newswires, La Nacion and Clarin). As usual, click to enlarge if you want.

The gov't says that up to 160 landowners in the Buenos Aires and Entre Rios provinces have deliberately burned their fields at the same time.

Weathermen say it's not going to disperse before the end of the weekend, with Tuesday earmarked as the most likely day to breathe easy again.To give you an idea of how bad it is, this weekend's games in the national religion of El Futból may be called off, with doctors warning of respiratory problems for many normal people, too. Hospitals have been inundated.There have been various pile-ups on interprovincial highways, with at least 3 people dead because of reduced visibility accidents.I've seen some revenge tactics in my time, but this one ranks near the top. Whatever happens, you can safely assume that any support for the agro sector in the city has gone bigtime byebyes. You haven't heard the end of this one.

"What's at stake here is to define the future of large- scale metallic mining in Ecuador,'' said Alberto Acosta, the assembly's president and a member of Correa's Alianza Pais party, in a speech before the vote. "The new mining law will favor serious entrepreneurs, not the speculators, because with clear rules, they will be able to work.''

You can put ARU in the serious column.

The 180 day stop-work order looks like a pain here, but the selling has been way too strong even taking that into consideration. Panic does that to people. I certainly hope you bought as much ARU as you could today. You will not regret it, whatever the price does in the very short term.

UPDATE: Aurelian is likely to bounce Monday. If you haven't done it yet, check article 8 of the approved mandate.

Just let 'em panic, dudes. These are the moments that remind you why you keep cash on hand and it's always wise not to be fully bought in the market. Anyone out there looking at the ARU.to PPS and thinking "darn...wish i had $$$ to buy at this price!!"

ADDENDUM: I just got a mail from someone long ARU (and worried)...initials PB. He said that my call to buy ARU with both hands yesterday doesn't sit with this "preservation of capital" post today.

It's fair comment, so a little more explanation. Yesterday's C$7.14 (well, the range was 7 to 7.50) was a knock-down bargain, and one of those moments that let's you buy a good stock cheaply. Today is one of those moments where you free up cash (in my case sell gold things) to get all you can.....the capital that you've preserved goes into action. A lot of the shares I've just bought (at under C$6) I'll sell back to the market in the short term...maybe a few will join the core holding. Opportunity knocks............

Remember: the worst news possible on this is 180 days of no work. ARU doesn't lose Fruta del Norte, and Correa is on record as being pro-mining (esp for the responsible miners like ARU)

These egghead dudes have a weird way of going about fighting. In Otto's world, you go outside, punch s___ outta each other then drink beer together afterwards. But enough about my intellectual level...let's see how the smart people do it.

This one started with smart person 1, Francisco Rodriguez, an economist at Wesleyan University (oh yeah). He was also the chief economist dude for the Venezuelan National Assembly. He started it all by writing a note about how Chávez's Venezuela wasn't helping the poor at all...AND HE'D GOT THE NUMBERS TO PROVE IT. After all, he's got no chip on his shoulder about anything Venezuelan...all he did was tell Chávez in 2002 that his policy of budget deficits would lead to big problems in the short term. Here we are, six years later, and it's unlikely that 6 years of a Venezuela economy proving Rodriguez totally wrong would get on his nerves.

That when smart dude 2 turns up, Mark Weisbrot of CEPR in Washington (no, not the London one). Now Weisbrot makes a living by going round telling US dudes "HEY!!! Ain't all that bad in VZ, ya knowz", and so he wrote a paper basically saying that Rodriguez's analysis sucked.

But this Rodriguez dude wasn't going to roll over and die that easily...he be big econ dude. Back he came with a rebuttal-of-the-rebuttal, which was full of scathing remarks about the figures Weisbrot uses, and the state of his crappy haircut*, and how he wasn't being like a real economist and "how-dare-you-question-me-anyway??" kinda stuff. Also lots of long calculations with weird looking symbols were used, I can tell you that much.

We thought it was all over. After all, the Rodriguez dude has a big chair in a big college and writes big papers with big log words. But NO!!! Weisbrot came back at him yesterday, and it's gotta be said, he whipped the Rodriguez dude's ass. Weisbrot totally like totally dismantled Roddy's argument (which was crap anyway, but numberz R numberz...gotta whack 'em around with other numbers before anyone academic listens).

So game, set and match to the Hugo-loving Weisbrot. Quite right too, as anyone who visited VZ in the mid 90s and then in 2005 (e.g. me) don't need no Casio to know that the moolah is getting spread around...schools, doctors, food, semi-automatic weapons...man, they got it all there.

4/17/08

Well, I've checked through every scrap of news I can find on Correa's press conference today. It was a wide-ranging question and answer session and touched on a lot of issues, however the one that's got my attention right now is the mining law.

When there are words that move the market, you have to find out what was said. What Correa seems to have said about mining (to quote the part I ripped from this article)

"...Correa indicated that some concessions that are in the extraction phase will be suspended for 180 days until there is a new legal framework and renegotiation of contracts.."

Here's the Spanish from the linked text above. Check my translation for yourself.

Now you gotta be careful about second guessing what the Asemblea Constituyente is going to decide on via Correa's words (the processing of the proposed mining "mandato", or law, starts tomorrow...it may finish tomorrow or it may go on for a few days) because Correa is not the assembly, nor vice versa. Also, this is not a direct quote but reported...it's as close as I can get right now, and I promise if the direct quote says anything different I'll tell you dudes.

BUT Correa's words indicate that ARU is in exactly the same position as it was before. That's also true for Corriente (CTQ.to) (ETQ), IAMGold (IMG.to) (IAG) and other companies that are only in the exploration phase and NOT the extraction phase. In other words, ARU's projected timeline will not be affected if we take Correa's words at face value. It is more likely to affect the timeline of a company like Dynasty (DMM.to) that is about to start production at its Zaruma mine.

So, taking Aurelian as my example (cos it's the Ecuador miner I like the most), the new law does not seem to stop the company from moving ahead with the exploration phase of the operation. If this is true, today's sell-off was due to nothing but panic, and nothing has changed.

1) Exploitation of large scale mining will be on hold until the new mining law is finalized. We knew that already. The timeline mentioned is around 6 months.

2) Correa is pro-mining as long as the miners adhere to the new laws being put in place. We knew that, too.

3) Errr...that's it. It isn't clear whether exploration stage miners like Aurelian can move forward with construction plans during this 180 day period, but apart from that there's not much else to say. It would appear to affect Dynasty Metals (DMM.to) more than Aurelian, Corriente, IAMGold etc, as Dynasty was close to going into production at its Zaruma operation. Right now DMM.to is down 3.5%....ARU.to is down 17%.

There's no reason to sell into this panic, and every reason to buy ARU here. Once the sheep are shorn, wiser words will calm the market and ARU will go back up.

There were funnier pics to post up here, but this illustration is wonderful and worth the exposure

The cutely-named American Task Force Argentina (ATFA) ran a full-page advert in the Wall Street Journal today. With the snappy title of "Argentina: Bad Friend, Growing Threat", it explained to the world just how terrible things are for......erm.....for themselves, really. Here's the link, so have a look for yourself...nice photo, no?

Those ATFA dudes must be feeling pretty stupid right now, and methinks just a little bit desperate. After three years of lobbying for bond holders that didn't take the Argentina haircut deal in 2005, they have exactly zero to show for their efforts. Worse than zero, in fact. All this time the group has pinned its hopes on the day Argentina wanted to go back to the world debt markets, sell bonds...y'know, stuff like that. They reckoned that when that day came, Argentina would be forced to settle its debts before getting any love from the world.

WRONGO!! Not only has Argentina tapped "Uncle Hugo" for cash these last few years, it now has a nice line of credit going with the Interamerican Development Bank (IADB), which looks like getting extended another $8Bn in the near future. It also has about U$3Bn coming from a private French brokered bond deal for Klishtina's dream bullet train project. But the one that must have made the blood drain from ATFA faces was Henry Paulson giving USA public backing for Argentina to go and sort out its Paris Club debt in a whole bunch of negotiations coming up in the near future.

Hence today's advert from ATFA, and let's just note in passing the factual mistakes in today's ad before getting to the main point here.

1) It says Nestor Kirchner's government defaulted on the Argentina debt. Ridiculous. I mean, even wikipedia has got a better time line than you guys.

2) It talks about "disastrously inept economic management". Well that might be true right now, but from 2003 to early 2007 Argentina dug itself out of the hole really well, and even though he's by no means my favourite, credit should go to then finance minister Roberto Lavagna for the policies that allowed Argentina to recover much faster than any world finance body expected.

3) It says Klishtina is voicing a "New claim to the Falkland islands." That's nothing new; Argentina has consistently claimed the islands since the war in the early 80s. Whether it's a valid claim or not is beside the point. ATFA is just making things up.

Then there's the usual bunch of crap about Chávez and the FARC and a very weird thing about Argentine farmers, foot and mouth disease, and having a unfair advantage over their US counterparts. Note that the US agro industry is the most subsidized sector of the whole US economy....but that one doesn't count....

But the main point is not mentioned. This whole ATFA thing makes it sound like there's a bunch of impoverished individuals who were unlucky enough to be holding Argentine bonds when the wheels came off the merry-go-round and now they're stuck with useless paper and about to lose their homes cos they can't get their money back. In fact, the defaulted Argentine bonds are freely traded in the markets and those holding them can sell at any time they like. The REAL reason behind all this is that a group of so-called "vulture funds" has been buying up the defaulted paper at a heavy discount to face value (say for example paying $30 for a $100 bond) in the hope they can bully Argentina into paying full whack. The little guys sold out years ago...this is big, dirty capitalism at work now.

Hence the bullshit advert in the WSJ today. And with the chance to turn about $7Bn into $20Bn, you can bet they can afford a few more ads like that in the near future.

It's nice when a story like this comes up, cos it reminds you how normally sane, rational, even intelligent people can be just plain STUPID when you dangle a wad of dollars in front of their noses.

It all started when the top dude in Brazil's oil watchdog industry, a certain Haroldo Lima, said that a new offshore oil field could contain the equivalent of 33 billion barrels of oil. The exploration/ concession work is 75% Petrobras (PBR) and 25% Repsol (REP), and both stocks rocketed on reports of Mr. Lima's comments. Rather than tell you exactly when this all started, have a look at this 10 day chart of PBR and take a guess at which day the news hit:

So then the thing just went totally viral, especially when a couple of naive fools who get 6 figure salaries at Merrill Lynch pumped it to death (I mean...do these dudes even speak Portuguese???). The next day, another New York analyst at Citibank (who should bother to cross the Rio Grande every once in a while) jumped on the bandwagon. That day, a website I enjoy did a quick collation of news stories about the "discovery" and put them together on one article, and although in Spanish it gives you an idea of the feeding frenzy that was created. It all sounded like Petrobras/Repsol would be extracting 5 squillion barrels of oil a day from this starting next Friday....around teatime.

All this time, I was scratching my chin and wonderin'....and waitin'. I got mails from people saying "You're not informed!!! Why aren't you on this story????"* Well, the reason was that this story a) wasn't new and b) was being blown up out of all proportion. Haroldo Lima was quoting from a previous initial study that was published in February (which I'd read already, cos I'm a real wonk like that). Post Merrill Lynch/Citibank hype, Petrobras was consulted and it rightly said that their own info was preliminary and they weren't making any moves on such flimsy evidence, let alone public comments. But even then, the scuttlebutt from the less informed and more hyperbolic quarters was still saying "Well...no smoke without fire...Lima wouldn't have said anything without a prompt" etc etc.

IT IS TOTAL BULL.

A quick rundown:

1) The field was mentioned in Feb '082) Drilling has been very limited so far3) The field is certainly promising, but that doesn't mean there's oil everywhere they stick a tube. But the big one is........4) It's in a deepwater area, and technically difficult to extract from. The oil lies under sea, then under a thick wodge of salt-laden rock. It will take a long time (meaning years, dude....years) and will cost serious money to begin commercial production there.

Here's a note from The Economist, out today, that does ok-ish justice to the current situation. Which is all well and good and might bring a little sanity back to the situation, but in the meantime:

You wanna make money in the market tomorrow? Short PBR. Easiest ten bucks a share you'll ever make.

4/16/08

We've just heard that after being held in prison for over two years without being charged or convicted of any crime the Venezuelan military has released press photographer Bill Hessian. On his release, Bill said, "I have spent two years in prison even though I am innocent. I thank everybody."

December 07 and January 08: Garcia&Co. tells Peru that there is no inflation in the country. Strangely, Peru finds it hard to believe.

February and March: Garcia&Co. tells Peru that yeah, there is a bit of inflation, but it's not their fault and it'll soon go away. Peruvians reply by telling Garcia&Co. what they think of the job it's doing so far. Garcia, with a 33.8% approval rating (high income earners giving him 66%...not bad for a socialist, eh?) actually beats out his ministers, none of whom score over 30%.

April: The gov't continues with its "inflation is temporary" line. Unfortunately, reality is about to bite. There has already been strike action from the Peru agro sector, with the price of fertilizers way up on the list of complaints. Here's a chart to show you why.

The BIG problem for Alan and company is that fertilizers are not getting any cheaper. They're not a touch more expensive, either. They're rocketing, as this story out today explains.

Potash has just gone to $576/tonne FOB for 2008 delivery. Two weeks ago, delivery price to Brazil was set at U$750/MT. Now check that (now outdated) chart again, and you'll see that today's contract price is a mere, trifling U$250/T more than the already inflated prices of last year.

And how about the boom in construction we hear about? Do you think that the $250/T price rise for steel announced by Arcelor Mittal today will have any effect on prices going forward?

It may be true that the inflation is of the imported variety. SO WHAT? The people elect governments to govern, to solve problems and to do right by the people, not to sit there and go "it's not our fault". The pathetic attitude of Garcia has to stop right now. This gov't has to take action before there are serious problems amongst the vast majority of its people that have not seen a single droplet of the long-promised trickledown wealth effect.

If Peru thinks this won't have an effect on food prices going forward it's living in its own , private cloud-cuckoo land. The time for feeding BS to its citizens is now officially over, and any more excuse-mongering will take the country down the road to serious civil disturbances, mark my words.

Other people will tell you all about fibonacci ratios and RSIs and stuff that makes me start scratching my head. I just see gold lagging other ways of hedging versus the USD right now. As much as the greenback has sunk already, the only reason dollar bulls have come up with so far to say that USD will rise is that "it's low right now".

The world of losing investments is full of statements like that. GIVE ME A FUNDAMENTALLY SOUND REASON TO BUY THE DOLLAR, AND I WILL. Until then I will continue to protect myself. This is not a moment to go for big gains...this phase of the stock market cycle is all about keeping your powder dry so that when the opportunity comes you'll be able to make good money (and not just get back to the point you found yourself at 2 years ago).

Buy gold, people. Be sensible.

Meanwhile, Dr. Copper has decided to make me look silly and popped to $4.02...I'll be watching that one carefully. Time to trade a bit of PCU? It could well be. Here's a good quote from JM Keynes:

"There is no harm in being sometimes wrong - especially if one is promptly found out."

You knew it was coming....you waited up late and kept hitting refresh til Otto posted it up.......yes indeedy doo, the special time is here:

SNEAKYDEAKY QUIZTIME V: THE ANSWERS

And man, you guys were screaming and wailing at me this week with "OW OWWWWW OWOWOWOWOWOWOWWWWWWWW...TOO HARD OTTO!". Ok, fair enough...even I admit this one was a toughie. So next week we'll try a different formula and see what happens. But that's for then, and this is now, so let's get on with the show!!

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:1) When asked about the difference between the price of milk in March and the official inflation numbers for said product, what was the reason given by Argentina's cabinet chief A. Fernandez?a) "Milk was freely available at various prices."b) "The agro strike doesn't count."c) "Maybe people buy a different kind of milk."d) "The gov't is not lying. Why do I have to keep repeating that?"

The correct answer was c), "Maybe people buy a different kind of milk." Takes your breath away, dunnit? Straight from the dept of "can't make that shit up". Every LatAm cabinet needs its pitbull terrier type...AF is the dude in Klistina's.

Maybe even worse was the total lack of reaction from Argentinians over that comment. Just goes to show how even their ingrained cynicism (and they sure got that down there) has been beaten to a pulp over this inflation thing.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:2) Here's a part of Latin America, according to Google Earth. Why is it covered with water?a) It rained a lotb) Typical for the time of yearc) Somebody plugged up the riverd) It's always like that round here

The correct answer was c), cos the googleshot is of the Itaipú Dam, Paraguay/Brazil, and the big puddle that formed behind it. I'm also being non-sneakydeaky and giving a point for d) as an answer, cos it's been true for the last 25 years. Itaipú is something to behold, and I could go on about it for a week. I might even dedicate a whole quiz to it one day.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:3) Which country's government decreed a 10% rise for all workers in private companies this week?

a) Paraguayb) Dominican Republicc) Boliviad) Uruguay

The correct answer was c), Bolivia. Gotta love Evo...why vaguely annoy the Santa Cruz people when you can really really get 'em mad as hell, eh?

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:4) Due to inflationary pressures, both Chile and Peru recently announced direct aid programs for its low-income citizens. How much more has Chile set aside for its program than Peru?

a) Twice as much moneyb) Three times as much moneyc) Five times as much moneyd) Ten times as much money

The correct answer was c), according to my own calculations. However some smartypants added an addendum to his (correct) answer to pretty much prove that even 10X comes up short.xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:5) The average Latin American is responsible for what quantity of greenhouse gas per year?

a) 3.8 tonnesb) 7.5 tonnesc) 12.3 tonnesd) 23.4 tonnes

The correct answer was b), 7.5 tonnes. Those other numbers weren't just picked out of a hat though. 3.8MT per person is the greenhouse gas footprint in Monaco (just about the lowest). 12.3MT is for Germany. -And the 23.4MT? Have a guess.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:6) What percentage of Honduras' GDP is made up of remittances from abroad?

a) 7%b) 13%c) 19%d) 25%

The correct answer was d), 25%. That's seriously big sendhomes, no? To be honest, I don't know if it's good or bad...it just IS.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:7) Which stock lost 4.6% after Otto recommended it as a buy this week?

a) ARU.tob) ECHc) PCUd) DNT.to

The correct answer was a), Aurelian. But it'll go up this week...honest..like....errr.......dude.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:8) Who is still the worst Finance Minister in Latin America?

The correct answer was Martin Lousteau. Hey you guys are smart. Mind you, after looking back at number 7), maybe dwelling on those who think they know about finance isn't such a good idea right now.........

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:9) Which of these was the best performing stock market index this week (Mon 7th to Fri 11th)?

a) The S&P 500b) The Argentine Mervalc) The Nasdaq Composited) The Brazilian Bovespa

The correct answer was b), the Merval. Here's the chart to prove it (click to enlarge).

Mind you, it wasn't exactly a "best" performance, more like a "least worst".

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxI asked:10) Which Latin American president asked their defence minister to resign this week?

a) Klishtinab) Lulac) Evod) Studmuffin

The correct answer was d), the Studmuffin got rid of Wellington Sandoval (crazy name, crazy guy) after suddenly realizing his armed forces were riddled with CIA informants. That made me laugh, cos it's a bit like suddenly realizing that it rains in the jungle, or a sudden burst of conscience makes you realize that snow is cold.

And there we go! The only thing left to reveal is the name of our lucky winner. And that person is the wonderfully amazing RESSEL!Oooooh yeah, the Ressel dude scored a mighty NINE OUT OF TEN (I was impressed, gotta say) and gets tonight's star prize, the romantic evening for two with Ecuador's President Rafael Correa. The good news is that, by all accounts, the totally cool surferdude Ressel is a top kisser. However, I would advise no tongues on first dates, ok?

And that just about wraps things up for this edition. So keep your eyes peeled for the next sneakydeaky quiz, coming at you on Saturday. Until then,

4/15/08

Here's a little recap of the stocks'n'things mentioned in the last two weeks. Let's see how we've been doing.

It started by covering the BG short, opened at 98 and 95, and closed at 86. Pretty good trade, though i am kicking myself for being chicken and not going long afterwards. All that preservation of capital stuff froze me, so I just watched as BG zoomed to $108.58 (today's close). Humph...missed opportunity, and basic mistake.

On the same day I went long GLD at $91.64, then added to the position a few days later at a knockdown bargain $86 and bits. With GLD closing at $91.66 tonight that's a winner, and I still have $95 as my selling point. As well as the gold ETF, I added a chunk of physical gold last night at $929. I repeat that these are trading positions and nothing to do with the long term gold positions.

Here I sold non-core holding PCU at $120(the buy was off this blog's radar, but it was at around $105 a few weeks back). Then tried to get clever with shorts, timed it badly and lost a buck or so. Since then PCU has basically flatlined, and there's no rush to get back. Meanwhile, the ongoing spot copper call is working out just fine, with $4/lb cu strong resistance and today's close at $3.92/lb.

Next, I highlighted why I like Aurelian after it closed at C$8.75. It's down a bit since then (closed $8.34 today), but the whole point here is to wait for a couple of months, see how the new Ecuador draft mining laws come out and then expect the buyout offer. ARU showing a technical loss here, but ain't sweating at all.

Last Friday, I reiterated my short call on Chilean ETF fund, ECH. So far we're in positive territory there, but only just. 0.6% means we've covered the commissions costs and not much else. The position is still open and the initial target is still $48. Key to the play is the evolution of the Chilean Peso, and this week Chile's central bank has been actively intervening as promised.

This week I wrote this note on Global Copper (GLQ.to) and Los Andes Copper (LA.v). GLQ can only be called a technical victory, because the very next day before the bell it announced the sale to Teck Cominco and shot up 25%. However LA.v has done very well, up 13% in just two days' trading, and good volumes too. Somebody mailed in today and asked me for a target on LA.v, and i replied that under the present circumstances I think it's worth around 0.80. That target is NOT set in stone, however. Vamos a ver........

Finally, today's note on Telecom Argentina. Lost a touch today and closed at a round U$20. Early days....let's comment in the next update note in two weeks' time, yeah?

All in all, not a bad two weeks. The copper call is working well, and LA.v has made this week so far. I'm still annoyed about not going long BG. PCU is still held in the LT port, but there's not much reason to add any trading shares right now, imho. Gold looks good, in LT physical, trading, and ETF form. Plenty of patience there.

Look for another of these updates in 2 weeks' time. Also, look out for the sneakydeaky quiz V answers out tomorrow.

1) You're in the banking world in your country. You are rich and well-connected.

2) Another country decides it wants to sell its bonds to your people.

3) The bonds are in dollars, and because your country operates strict capital controls there is an enormous demand for access to dollars from banks and the general public.

But then, instead of running a transparent public auction for the whole package, the gov't says to you, "Hey dude....go and choose some banks and sell these for us will you, please?"

So suddenly you're in charge of, let's say, one point five billion dollars (yes, with a "B") in bonds, and it's you offering all this money to a bunch of banks at an exchange rate of, let's say, 2,150 to the dollar. And the banks that get their hands on these bonds will be able to sell the dollars at, let's say, 4,300 to the dollar.

Or in other words, you'd be able to offer free money to a banker. A lot of free money (if you need an analogy, offer heroin to a junkie and see what the reaction is). And because it's a non-public tendering process, nobody but nobody is going to bother you with questions or ask you why you choose to give bank X U$300m of the bonds and bank Y only U$30m worth. Think about how thankful the banks would be if you handed out a larger chunk of those sexy bonds to them. And because you manage to run the whole bonds emission smoothly, the government likes you too, and you become a powerful and influential person with the national administration.

Meet Moris Beracha, the go-to guy in Venezuela financial matters. Since 2002, Beracha has been one of the inner banking/intermediary circle that has moved from the ranks of rich to oh-my-stars rich (various luxury properties, private helicopter, stuff like that etc etc). But since previous go-to guy Eligio Cedeño got himself in a real mess last year by allegedly helping a Chávez enemy escape from prison (landing him in jail himself), Beracha has moved up to be main-man-that-matters in the Venezuelan netherworld between socialism and capitalism.

In 2007, the Argentina dollar bonds sold to Venezuelan banks and then on to the public were the responsibility of Beracha. Of course it was a little more complicated than outlined above, for one thing the Venezulan goverment piggybacked its own local currecy bonds issuance on the back of the coveted dollar bonds, but all the same it was a really, REALLY easy sell for Moris. And now that the local VEF currency has appreciated and stands at 3.6 to the dollar (equivalent to 3600 in last year's VEB currency), the whole game is a win for the guys in suits. Think about this:

You buy a dollar for 2.15 VEF

You sell that dollar the next day for 4.3VEF (or even more..the parallel rate went to 6.7 at one point last year)

You then watch the VEF appreciate, and now you can buy back that dollar from the same guy you sold it to last year for 3.6VEF in the parallel market.

Meaning that at the start of the game you spend 2.15VEF. At the end you own a dollar and 2.85VEF. Nice work if you can get it, right? That's why banking rocks in Venezuela, and along with Colombia and Pakistan they were the world's most profitable banks in 2007. And that's why banks love Moris.

A small number of people becoming very rich via financial deals isn't a new story, of course. However, it does seem strange that so much money is sticking in the hands of so few people in a country where socialism is the order of the day. Also intriguing is how Beracha now has the ear of gov't finance people (being referred to as a 'consultant' to new Finance Minister Rafael Isea), at the very moment all talk is about what to do with Venezuela's fixed exchange rate.

A recent report in the London Financial Times about a possible dual currency system brought quick denials from the Finance ministry, but then Chávez himself brought the subject of exchange rates up again at his weekly Aló Presidente lovefest, saying that the fixed currency could become "more flexible", without really explaining what kind of flexibility he was talking about. Right now, this Otto is betting that whichever way they decide to jump with the fixed currency problem, it'll be something that the banking community will be prepared for.........

........but not GLD this time (still got that, and still looking for $95 to sell as a ST trade).

This time I used the BullionVault account, which gives me the flexibility to trade while the dudes in New York are all asleep. Check out the link above and see for yourself, and they really do give you a gram of gold to start off with in your a/c. Registration is easy too (and this is not a hard sell, dudes...just some friendly advice).

Got gold? Hope so, cos it looks undercooked here compared to the very weak USD. Remember that picking a stock or two to beat the market is all well and good (example TEO), but we are in a bear market, no doubts. And in this atmosphere, before you get fancy and start to trade your way to riches, you have to PRESERVE YOUR CAPITAL. And without putting too fine a point on it, that means having at least some gold (or perhaps silver or PGM) in your port.

OK, enough for one day, and I don't wanna start preaching your tush away. Check out BullionVault anyway. I posted on it previously here...it'll give you a bit more detail.

UPDATE: After sleepies, and I've saved myself over half a point by not waiting til this morning. We shall see how this pans out......

4/14/08

Today, independent consulting group IES Consultora* reported on the growth in the Argentine cellular phone sector during 2007. They noted a 36.4% growth in handsets and 40.4 million phone lines in service, a growth of 28.2%.

Impressive stuff. However the consultants also noted a YoY slowdown in growth, something that happens when a cellular market nears maturity and saturation. It was estimated last week by Argentine cellular player CTI Movil (now re-naming itself Claro to get in line with the other Carlos Slim companies in South America) that the Argentine market is at 90% saturation. This compares to 110% penetration in developed world markets, which may sound illogical at first until you think of your Uncle Fred with his cellphone for business and the other for personal calls, or Auntie Eva with her new phone and the old pre-pay phone she has collecting dust in the kitchen.

This slowdown in growth is natural and comes as no surprise to anyone, but it isn't all bad for the investor. When a cellular market saturates, it means the competing companies don't have to fight tooth and nail to hold on to (or even grow) their market share, with the result that the top line earnings start flowing to bottom line net profits. Put another way, top line growth may slow somewhat, but bottom line growth takes off. This is a pattern seen in more mature markets of Europe, US etc, and I think we're about to see pay-off time in Argentina too, as it's arguably the most mature South American telco market.

The way to play it? Well I like Telecom Argentina (TEO in New York, TECO2.ba in Buenos Aires), a stock I briefly mentioned the other day when doing the overview of the Argentina stock market. TEO has roughly 1/3 of total market share in Argentina with the other 2/3rds roughly split between CTI Movil/Claro and Telefonica de Argentina. Reasons to like TEO? Well this is a big subject, I'm only going to be able to broadstroke outline the company in a post like this and you have to do your own DD on this as well**, but let's start by having a look at this chart:

This shows TEO sales for the previous quarters to 4q07, and you can clearly see how the cellphone sector has fuelled growth. All very up-and-up, for sure.

Now have a look at this chart, which maps out the earnings in U$ for each ADR and also my projected earnings for 2008 (it says the source is SEC filings...that only counts til 4q07, obviously)For a long time, that top line growth wasn't reaching the bottom line. For example, in 1q06 TEO had revenues of around U$520m (1.61 billion Argentina pesos, to be exact), but only earned a penny per share. But if we fast-forward to the last quarter TEO had revenues of around U$810m (exactly ArgP$2.259Bn) and earned 44c per ADR. For 2008, my estimates put TEO making U$2.23/ADR, which means with today's ADR at U$20.29 the forward PE is 9X. That's really cheap when you look around and see peers like America Movil (AMX) and Telefonica (TEF) at much higher ratios.

When it comes to TEO, there are kickers, too. Here are four of them:

1) TEO is market leader in Argentine broadband internet, a sector that has a lot of growth left in it. Current internet domestic penetration stands at around 20%, whereas in mature markets like the USA between 45% and 50% of homes have internet. TEO has done the major capex investment in broadband, and more future topline revenue can now be moved to the bottom line.

2) TEO has a large stake in the still maturing Paraguay telecoms sector. Although that market is obviously smaller in absolute size than Argentina, I estimate it will bring its own bottom line reward at an 18 month to two year lag to the Argentina market.

3) Argentines are spending more on phonecalls, and the SMS (texting) business has really begun to take off in the last 12 months. In 4q07, monthly spend per client was up 5% YoY. This means that not only are there more clients, but those clients are spending more on average.

4) It's an obvious buyout play. The company is majority owned by Telecom de Italia, with the local Werthein family also owning a large share. I can imagine two scenarios that will benefit the minority shareholder: Firstly, an aggressive bid for the company, or secondly Telecom de Italia wanting to take all the shares and buying out minorities like the Wertheins (or you).

Bottom line: Even though growth is beginning to flatten out in the Argentine market, there's plenty of reason to like the results that TEO will post in the quarters to come. Bottom line growth will push the share price up from here, and I'm looking for U$32 as a 12 month target. That kind of valuation this time next year indicates a 15X trailing PE according to my EPS estimates (in the chart above), which would put it right in line with its peers. Disclosure: I recommend TEO to clients.

* It's a client-only website, but i thought I'd link it anyway**ALWAYS do your own DD before investing in anything. Remember you got to read this note for free. Think about that

a)Click on the link, and you can either choose the two magazines on offer or go to the page and choose from hundreds of magazines (including well-known ones like Global Finance, Forbes, BusinessWeek, The Economist, etc)

b)Sign up for the freebie you like (or maybe more than one)

c)The form you fill in is a little bit long. It'll take you 3 or 4 minutes so be prepared.

e)What's the catch? Well there isn't one, really. They want you to sign on for a free subscription then get you to love the service and renew at a later date for $$, of course. But apart from that, this is a total freebie dude. Enjoy.

f)Meanwhile, the Otto dude gets about a buck fifty or so for anyone who signs on. Maybe a bit more depending on which magazine you choose. Not a king's ransom by any means, but a tip for doing the admin stuff, or if you like a small payoff for what I reckon is a good deal worth promoting to you guys. Just being straight with you here, yeah? To be as straight as possible with you, if you sign on to a freebie magazine and then we meet some time in the future the beer's on me...how's that for fair?

"....TORONTO, April 14 (Reuters) - Teck Cominco Ltd (TCKb.TO: Quote, Profile, Research) will acquire Global Copper Corp (GLQ.TO: Quote, Profile, Research) in order to gain its Relincho copper-molybdenum deposit in Chile, which the deal values at about $415 million, the Canadian companies said on Monday.

The addition of Relincho to Teck's portfolio will add about 25 percent to the miner's measured and indicated copper resources, its chief executive said in a statement.

Under the deal, Global shareholders will receive C$12 or 0.26667 of a Teck Class B subordinate voting share per Global common share, subject to pro-ration. They will also receive one share of the new company, to be called Lumina Copper Corp....."

This solves that liquidity problem i was talking about, and I'll bet a full US Dollar that I won't be the only person with ready cash looking to rotate into a similar play.

So this morning GLQ.to is trading at C$13.60. The deal with Teck depends on the arbitrage at any given moment, of course, but right now it seems the market is pricing GLQ's other assets at C$1.80 a share.

So let's have a quick look at what those assets are. Here's the relevant info, ripped from the GLQ website. After a couple of Otto-notes:

1. The San Jorge project is in Mendoza. Mendoza has a "no mining" order in place, and i'm not holding my breathon it anymore.Argentina is making Venezuela look progressive these days.

2. Taca Taca is in Salta, and that means miner friendly.Getting a 25% free ride, it seems.

3. As well as these two assets, GLQ also holds 13% of LA.v and a 2% net smelter return at the Vizcachitas project.

4. GLQ also holds around $30m in cash at bank (but that's approximate)

So all in all, the market is saying right now that this little bunch is worth about$60m. The 13% of LA.v is worth$5.4m right now.The NSR is a long way off in the future, and the San Jorge asset is no great thing. This leavesthe 25% of Taca Taca as a free ride and the cash. Is Taca Taca worth $25m right now? Debatable. I'd adviseholders of GLQ to take the C$13.60 on offer right now and buy more LA.v.

So it works like this; just when things are...let's say....slightly strained between Correa and his military guys, Colombia pops up again and accuses Correa of ordering his troops to stand down on missions to search for FARC groups in Ecuadorian territory. You thought this was all over with that dramateeeque handshake at the OAS meeting, didn't you?

Correa has hit the roof, and has demanded that Colombia provides proof of this accusation within 48 hours. If it doesn't, Correa's going to do something really nasty like stand up in the middle of everyone and shout "liar liar pants on fire" at the top of his voice. This can only get worse, ya knowz.

Meanwhile, Alan Garcia gets interviewed by latino egohack numero uno, and decides that both Correa and Uribe are winners in the FARC affair. Gotta laugh at the timing, Alan. Oh, and errr...guess who Alan thinks lost out? Go on...take a wild guess.....

Note: The links are in Spanish, but if the stories get legs you can google English versions tomorrow morning for sure.

Note II: My sincere condolences go to the families of the 5 English women killed in a road accident in Ecuador late yesterday, and also to the 60 fatal victims of the Mexico bus crash this weekend.

4/13/08

"....we don't like buying the big guy. We like buyingthe little guy that no one else is buying...."

Eric Sprott, founder, Sprott Asset Management Inc, AUM U$6.8Bn

The latest rising star in LatAm junior miners is Global Copper (GLQ.to). This is totally understandable, as it's got a lot of positives for shareholders.

1) Working in Chile, one of the best places in the world (politically and economically speaking) to hold a copper deposit.

2) Proving up the very large Relincho deposit. There is already over 13Bn Lbs copper equivalent (including the moly on site) as a resource, and thanks to the ongoing drill results that resource is likely to get bigger still. On a pounds-in-the-ground basis, we're looking at approx 2.8c/lb Cu Eq with more copper resource to be identified, which means there's PPS upside left in the tank (have a look at the recent post on Candente Resources (DNT.to) for a bit more info about the way that calculation works).

3) A top quality management team that's led by Ross Beaty. This dude has a proven track record of taking a junior, proving it up and selling it to the highest bidder later, on the way adding significant shareholder value. A really smart model; he took Lumina Copper and split it into four pieces. The first three chunks are now sold (Lumina Resources, Regalito Copper, Northern Peru Copper), and GLQ is the last of the bunch. Will it be sold? The answer is "yes", the only doubts are "when" and "how much". Personally, I reckon it goes before the end of FY08, but hey....that's just me.

4) A low total share dilution. Right now the number stands at approx 33m fully diluted, which is very low considering they have a goodly amount of working capital at bank, too. The total share count is unlikely to top 40m before the project is bought out.

As always, there's a whole heap of info you need to check on as part of your own DD* that's not included in this post, and the best place to start is the company website, right here. Meanwhile, GLQ has really flown since its sister project Northern Peru Copper was sold back in December, as this price chart shows:

(courtesy of bigcharts.com. click to enlarge as always)

So with the cat somewhat out of the bag at GLQ, what the canny investor should do is look around for a cheaper way to play the same sector. The answer, I think, could be Los Andes Copper (LA.v), which is still way under the radar of most investors and offers great value. Here's why:

1) LA.v is also in Chile. In fact, the company bought its Vizcachitas project from Global Copper last year, a deal that suited both sides. LA.v got a quality greenfield project, and GLQ got U$10.4m in cash to use on developing its main Relincho project (as well as 13% of LA.v shares).

2) Vizcachitas is also big (though not quite in the same mega-league as Relincho, for sure). Right now the 43-101 compliant measured, indicate and inferred resource is 4.5Bn Lbs copper equivalent (this according to my personal calculations, with moly again the credit product) . It's also turning in good drilling results, with an April 2nd press release that was very interesting, cos it showed nice grades in a step-out drill hole, thus promising that the current resource will get bigger still.

3) Here are some basic numbers and calculations, in the same style as used for GLQ above:

Now there are more shares out for sure, and the resource isn't as big as at Relincho, BUT if you do the same "pounds in the ground" calculation, LA.v has copper priced at just 1.1c/lb copper Eq., and that's a big difference to the GLQ in situ price. Remember, the resource at Vizcachitas looks like getting bigger, too.

4) The management team, though maybe not quite as rockstar as GLQ, is full of quality. Topping the bill at LA.v is German dude Klaus Zeitler, who was a big guy in Teck Cominco for years, then went on to start up the very successful Amerigo Resources (ARG.to, a company with one of the smartest mining business models I've seen in years. Have a look a ARG.to to see what it does with Codelco tailings...very clever guy, that Zeitler).

5) Here's a chart showing the 12 month share price performance.

Not as sparkling as GLQ, I'm sure you'll agree. However, that doesn't mean this is a bad company, it means it's an undiscovered company. Big difference, saltamontes.

6) Finally, it's always a little bit apples-to-oranges to compare one project to another. The potential investor needs to be happy about the company that they're investing in because of what it is, and not simply because it compares well to another company. This is important, and an essential part of your own DD** because there are always variables.

Two examples of many; away from simple copper resource number LA.v has a significant advantage with water rights. While the area where GLQ's Relincho is dry as a bone, LA.v has already secured partial water rights For Vizcachatas. That's not a minor issue in Chile, people. On the other hand, there is a small but important part of Vizcachitas to which LA.v only holds majority ownership (not 100%), so to add value and avoid any issues in the future it'd be nice to see LA.v get 100% control of every square metre on site (although it's by no means essential, I hasten to add).

Finally, my disclosure. I like both GLQ and LA and have both of these companies in my portfolio. I've also recommended them to private clients on several occasions. The difference is that at current prices there's not much temptation to add to GLQ, but LA.v is still wonderfully cheap and I'm looking to add (depending on my own personal cash flow). For more information, check out the LA.v website, linked right here.

Keep it clear that these companies are speculative plays by nature, and if you start going overboard and betting the farm on LA.v, GLQ.to or any company like them, you could score a massive slam dunk or you could end up losing a lot of money. You are the master of your own destiny.

* ALWAYS do your own DD before investing in anything. Remember you got to read this note for free. Think about that.** I'm really not joking, ok dude?

It doesn't matter which sport you most go for, there are moments when sports go way beyond a game. We had a moment of that this morning, when David Nalbandian, not playing his best tennis, dug way way deep and won his match, putting Argentina into the semis of the Davis Cup.

Not a technically perfect game of tennis by any means. It was much better than that. Hope you caught it.

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